Obama to drop less generous retiree payments from budget

Bowing to pressure from liberal groups and angry seniors, the Obama administration on Thursday dropped from its forthcoming proposed budget a plan to trim back cost-of-living adjustments for Social Security recipients.

President Barack Obama angered Democrats and seniors last year by including a proposal favored by Republicans called the Chained Consumer Price Index, which involves a less generous way of making cost of living adjustments and thus reduces the budget hit for these payments to retirees.

"This is a huge progressive victory -- and greatly increases Democratic chances of taking back the House and keeping the Senate,” said Stephanie Taylor, co-founder of the Progressive Change Campaign Committee, a liberal policy group. “Now, the White House should join (Massachusetts Democratic Sen.) Elizabeth Warren and others in pushing to expand Social Security benefits to keep up with the rising cost of living."

Obama proposed the change as an olive branch to Republicans in an effort to forge a bipartisan budget. The recent two-year budget deal did not include chained CPI, and that signaled it was unlikely that the president would propose it again.

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“In the course of those negotiations (last year), he put chained CPI on the table as a gesture of good faith; yet Republican leaders were unwilling to budge,” Minority Leader Rep. Nancy Pelosi, D-Calif., said in a statement. “Democrats applaud the President for eliminating chained CPI from his budget, and we look forward to working across the aisle to adopt a responsible fiscal framework.”

Republicans were unhappy with the news.

“This reaffirms what has become all too apparent: the president has no interest in doing anything, even modest, to address our looming debt crisis,” said Brendan Buck, spokesman for House Speaker John Boehner, R-Ohio. “With three years left in office, it seems the president is already throwing in the towel.”

The consumer price index, or CPI, is the government’s main gauge of inflation and is used to determine cost-of-living adjustments, often shorthanded as COLAs. It’s a formula used for more than four decades.

In an effort to save $230 billion over 10 years, Obama last year proposed a switch to chained CPI, which assumes that consumers don’t always pay higher prices for products but rather substitute with cheaper alternatives. The net result is a lower inflation rate than measured by the conventional CPI, and thus a reduced burden in paying COLAs.

The Labor Department’s Bureau of Labor Statistics continues to test an inflation index for the subset of elderly Americans. This index would more accurately reflect the true cost of what seniors pay for goods and services, which differs from the younger working-age population. That index, however, is not yet ready for primetime, Jason Furman, the chief of the White House Council of Economic Advisers, recently told McClatchy.